OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has downgraded the Financial Strength Rating (FSR) to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb+” (Good) from “a-” (Excellent) of Brotherhood Mutual Insurance Company (Brotherhood) (Fort Wayne, IN). The outlook of the FSR has been revised to stable from negative while the outlook of the Long-Term ICR is negative.
The Credit Ratings (ratings) reflect Brotherhood’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).
The ratings downgrade reflects erosion in the company’s surplus position and correlating risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), elevated leverage metrics, and volatility in its commercial multi-peril, liability and commercial auto reserve development. Erosion in Brotherhood’s capital was primarily driven by a progressive deterioration in underwriting earnings. The company’s underwriting performance has been challenged by elevated weather-related losses, particularly multiple low level catastrophe losses impacting its property insurance book. Management recently introduced wind and hail deductibles in coastal areas, rate increases, a quota share and tighter underwriting guidelines to improve results.
The negative outlook on the Long-Term ICR reflects ongoing pressure on the operating performance assessment given elevated volatility in results, along with continued pressure on the balance sheet strength assessment associated with unfavorable trends in risk-adjusted capitalization and elevated leverage metrics. While overall reserves were in a redundant position as of year-end 2023, overall favorable development is attributed to large releases in the worker’s compensation line of business offsetting deficiencies in liability, CMP and commercial auto lines. The company is a market leader within its niche with a strong presence in the congregational and hierarchical church markets, distributing through a well-established network. ERM is assessed as appropriate, focusing on risk mitigation and control, aided by a comprehensive reinsurance program.
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